Passing Austerity Measures Doesn’t Mean Free Ride for Euro – EUR USD June 29,... |
Greece’s Parliament is expected to pass austerity measures this morning in a move that is necessary to ensure its continued existence. Protests and strikes continue in Greece as the country faces incredibly tough times.
Some people are calling this morning’s vote a “suicide vote” because it means that the legislators who vote for austerity are likely to lose their jobs. Whether they vote yes or no, it appears the government officials are going to lose their jobs because the country will be out of money.
Without the financial aid from the European Union and the International Monetary Policy that is expected to be delivered pending approval of the austerity measures, Greece will be bankrupt. If the measures don’t pass Parliament, then austerity measures are likely to kick in anyway, but that scenario will mean uncontrolled cuts in government services. At least with an austerity plan, the situation will be handled differently and in perhaps a more humane manner.
Even if Greece passes the austerity measures, the celebration in the Euro Zone may be short-lived because of worsening debt situations in Italy and Spain. This morning’s spread between Italian and Spanish Bonds and the German Bund indicate that trouble may be brewing.
Besides almost immediate gratification in the Euro following the passing of the austerity measures, traders are going to have to decide how high to drive the EUR USD. Although upside targets have been identified by the technical chart watchers, it looks as if a favorable outcome of the critical Greece vote has already been priced into the market. Traders have to be careful today buying strength as they may be disappointed. The reward is going to come to those who stepped up earlier in the week when the Euro was cheap and there was still uncertainty regarding Greece.
All that stands in the way of a pop up in the Euro this morning is a slight majority of 151 votes in the Greek Parliament. The worry shouldn’t be on the upside, but what happens if the rally stalls and begins to break lower or the deal falls apart altogether.
One thing that traders may be forgetting is that although the austerity measures may pass, the actual implementation of the bailout still has to be approved. Given the weak state of the Euro Zone economies, it is possible that this vote may be close, causing turmoil in the Forex markets for one more day.
The EUR USD inched up overnight to 1.4471, taking out the previous day’s high and moving closer to a potential breakout over the June 22 top at 1.4442.
Based on the main range of 1.4940 to 1.3969, the 50% retracement level at 1.4454 could be early resistance, however, upside momentum is likely to drive the currency pair right through the price into a downtrending Gann angle at 1.4536 then a 61.8% level at 1.4569.
A trade through 1.4442 will also confirm the double-bottom formed between 1.4073 and 1.4102. These two bottoms are also important support points and change in trend levels. A trade through these bottoms will indicate weakness; however, the break through the most recent main bottom at 1.3969 is likely to lead to an acceleration to the downside.
Although the austerity measures are expected to pass this morning, triggering a relief rally in the Euro, no one is certain how much of this rally has already been baked into the price. Since this is just one step in the process of getting Greece’s economy back on track, this morning’s expected rally may be short-lived. This means that traders should pay close attention to the resistance levels and the price action when the market reaches these points.
About the author: Forex Mansion Analyst - James Hyerczyk
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